Buy now pay later schemes are offered by many retailers as a way to entice customers into spending more. However, consumers need to be aware of hidden costs associated with these schemes.
With buy now pay later schemes, retailers typically offer interest-free periods of 6 or 12 months. However, if the balance is not paid off in full by the end of the interest-free period, the customer will be charged interest at the standard rate (usually around 20%). This can quickly add up, especially if the purchase was expensive.
Another cost to consider is that late payments will usually result in a penalty fee. This can be around $10-20 for each instance. So, if you miss a couple of payments, you could find yourself owing quite a bit of money in fees.
The hidden costs of buy now pay later
Buy now pay later schemes may seem like a great way to spread the cost of an expensive purchase, but there are hidden costs that consumers need to be aware of. Interest is often charged from the date of purchase, so if you don’t clear the balance in full within the interest-free period, you’ll start accruing interest on the entire purchase price.
Minimum monthly repayments are often set at a low level, meaning it could take a long time to pay off the debt if you only make the minimum repayment each month.
If you miss a payment or exceed your credit limit, you’ll likely be charged hefty fees, and your interest-free period will be cancelled.
How buy now pay later can impact your credit score
If you’re considering using a “buy now, pay later” service, be aware that it could have an impact on your credit score.
Most “buy now, pay later” services don’t require a credit check, but they may report your payment history to the credit bureaus. If you make timely payments, it can help build your credit. However, if you miss a payment or are late, it could negatively impact your score.
Additionally, some “buy now, pay later” services charge interest and fees, which can add up quickly. Be sure to read the terms and conditions carefully before signing up for any service to avoid surprises down the road.
Tips for avoiding the pitfalls of buy now pay later
Be aware of the potential pitfalls if you’re considering using a “buy now, pay later” service. These services can help you avoid interest and give flexibility in how and when you pay for your purchases, but they also come with hidden costs.
Here are a few tips to help you avoid the pitfalls of buy now pay later services:
Read the fine print: Be sure to read the terms and conditions of any buy now pay later service before you agree to use it. There may be fees or other charges that you’re not aware of.
Know your credit limit: Buy now pay later services typically have a credit limit separate from your regular credit card limit. Be sure to know what your limit is so you don’t inadvertently exceed it.
Set a spending limit: You can set a monthly spending limit on your buy now pay later account to keep yourself on track.
Avoid making multiple payments: Multiple payments can result in additional fees and make it harder for you to get out of debt.
